Thursday, April 19, 2001



Economic slowdown
across Asia will be

THE ASIAN Development Bank, which will hold its annual meeting in Honolulu in May, believes that the economies of East and Southeast Asia will experience a considerable slowdown during 2001. The good news, however, is that the slowdown will be short-lived, with the region returning to its growth trend in 2002, which may affect the economy of Hawaii.

The ADB, in its annual forecast, predicts that growth in the newly industrial economics will decline to 4.3 per cent in 2001 before rebounding to 5.6 in 2002. The corresponding forecasts for Southeast Asia are 4 and 4.6 per cent, respectively. The growth rate for all of ADB's developing member countries, which stood at 7.1 per cent in 2000, will decline to 5.3 per cent in 2001 before it rebounds to 6.1 per cent in 2002.

The most important factor underlying Asia's temporary slowdown is the slowdown in the United States that began in the second half of 2000. The forecast assumes that the U.S. economy will grow a shade below 2 per cent in 2001, while Japan and Europe will grow in the range of between 1 to 2 per cent and 2.5 to 3 per cent, respectively.

The ADB also predicts that India and the People's Republic of China will maintain their current momentum, growing at 6.2 and 7.3 per cent, respectively, in 2001. Due to structural reforms under way in these economies, and because their ratios of trade to the overall economy are much lower than those of most East and Southeast Asian economies, they are expected to stay on course.

The main risks related to the weakening of the U.S. economy are based on strong fundamentals, flexible product markets and the possibility that recent investments in high technology have permanently boosted the trend in growth rates.

The bank expects that growth in Europe, and especially in the euro monetary area, has become sufficiently self-sustaining to withstand a U.S. slowdown. Although data from Japan suggest that recovery is faltering, it is premature to conclude that Japan will slip back into recession.

The ADB believes that outward-oriented trade policies help to lower poverty. Since developing Asia is labor abundant, it has a comparative advantage in labor-intensive goods. Increased trade increases the demand for labor, helping the poor directly. In addition, there is compelling evidence that outward-oriented policies promote growth, which, in turn, provides jobs and governments with the fiscal resources to fund anti-poverty programs.

Arvind Panagariya is chief economist
of the Asian Development Bank.

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